3    Building an Operational Backbone

Both facts and folklore herald the Titanic as the most remarkable, lavish, exciting passenger vessel of its time. The ship offered an incomparable customer experience. Designers and builders had tended to many details both for safety (including watertight compartments and remotely activated watertight doors) and for comfort (such as swimming pool, gymnasium, libraries, high-class restaurants, and opulent cabins). This is a ship you wanted to be on. Until it sank.

As companies set out on their digital journeys, they will be seeking new, rather remarkable, value propositions. It’s an exciting prospect. But leaders must ask an important question as they start their digital journeys: How do we avoid operational issues that could sink our digital efforts?

Digitized ≠ Digital

As we’ve already noted, digital companies deliver digital offerings. In developing digital offerings, business leaders apply digital technologies to create customer solutions. Digital technologies, however, can have just as big an impact on existing operations as they do on new value propositions.

We distinguish these two potential impacts of digital technologies as the difference between digitized and digital. Digitizing with digital technologies involves enhancing business processes and operations with SMACIT and related technologies. For example, Internet of Things technologies can automate support of distributed equipment or operations; mobile computing can create a seamless employee experience; artificial intelligence can help automate repetitive administrative processes. These applications of digital technology can certainly benefit a company, but they digitize a company; they do not make it digital.

In contrast, digital expands and accelerates innovation. When companies become digital, they apply SMACIT and related technologies to deliver digital offerings.

Digitization enhances operational excellence; digital enhances the customer value proposition. It’s important not to confuse the two. Business executives who think they are leading a digital transformation when they are, in fact, digitizing may achieve operational excellence on an outdated value proposition. This may elevate competitiveness in the short term, but it’s not likely to lead to digital success. Consider the limitation of being the best taxi company in town when Uber and Lyft arrived on the scene.

Sadly, however, this does not mean that established companies can abandon the pursuit of operational excellence in favor of digital innovation. In a world of ubiquitous data, unlimited connectivity, and massive processing power, there is little room for human intervention. The speed of digital business means that employees don’t have time to mess around with dysfunctional operational processes. People have work to do, decisions to make, ideas to explore. Systems, processes and data must make it easy for customers and employees to accomplish what they are trying to do. Leaders can’t waste bandwidth putting out fires. They must spend their time gaining new insights and converting those insights into action.

Operational excellence has shifted from being a good idea to a “must have.” Digitization was the goal of prior business transformations, for example, in enterprise resource planning (ERP) implementations. Now it is a prerequisite to digital transformation.

Operational Excellence Is Table Stakes

To understand the importance of digitization—and the resulting operational excellence—for digital businesses, start by trying to imagine how successful Amazon would be if most of its packages did not arrive on time. Or imagine Uber’s success if its customer payment system went down every other week.

The need for speed requires companies to be highly efficient, to minimize time and cost. Consequently, operational excellence is no longer a potential source of competitive advantage. As a poker player would say, it’s table stakes.

To be sure, becoming operationally excellent is more easily said than done. Most big companies have operated as business or functional silos for many years. Business leaders created the systems, data, and processes they needed to accomplish their objectives within their silos. In doing so, they often failed to consider how their systems and processes might eventually need to coordinate with other parts of the business. When they later recognized integration requirements, leaders often responded by tweaking systems and processes to achieve an immediate objective. Over time, narrowly focused systems and processes and the quick fixes applied to them produced costly combinations of automated and manual processes and unreliable data. (See figure 3.1 for a visual description of the problem.)

Figure 3.1

Siloed systems, processes, and data

As a rule, companies have enlisted people, in a variety of roles, to address the need for linking together local systems and processes and extracting meaningful data. As reflected in figure 3.1, these people “wire” together individual siloed systems, processes, and data in a variety of ways. For example, they (1) dump data from multiple silos into a single spreadsheet; (2) rely on the IT unit to develop one-off links to data in other systems; (3) insert manual processes between two automated processes to make them look end-to-end. We have tended to view the people creating these linkages as heroes; they have kept businesses afloat. But the net effect of their efforts—coupled with the systems they use—is to create such a complex operational environment that their companies are slow, inefficient, and high-risk.

Digital businesses will not long survive processes that rely on individual heroes. To satisfy the demands of, say, a typical user of an app, mobile transactions must be reliable and seamless. This means that, to play in the digital economy, companies need to replace their dysfunctional systems and processes with an operational backbone.

Digital Business Is Built on an Operational Backbone

An operational backbone is a coherent set of enterprise systems, data, and processes supporting a company’s core operations. The backbone replaces the messy legacy systems, processes, and data generated by siloed business units with standardized and shared systems, processes, and data. Figure 3.2 depicts the operational backbone.

Figure 3.2

Operational backbone

An operational backbone contributes to business success by ensuring reliable, stable, secure operations. Specifically, it does four things:

1. Supports seamless end-to-end transaction processing.
2. Provides reliable, accessible master data (i.e., a single source of truth).
3. Provides visibility into transactions and other core processes.
4. Automates repetitive business processes.

The benefits of an operational backbone are substantial. Because it eliminates—or significantly reduces—non-value-adding variability in a company’s systems, processes, and data, it contributes to profitability, customer satisfaction, and innovativeness. This positions a company for digital business. In fact, our research shows that companies with an operational backbone—companies that exhibit the above characteristics—are more agile and innovative than their competitors.¹

Companies with an effective operational backbone are 2.5 times as agile (measured as reusing services in developing new offerings) and 44% more innovative (measured as percentage of revenue from new offerings) than companies without an operational backbone.²

Take, for example, Nordstrom, a North American fashion retailer. In the highly competitive retail industry, Nordstrom took an early lead in offering online and digital services, because its operational backbone allowed buyers, supply chain managers, and even salespeople to see what was in inventory and where any given inventory item was located. That extraordinary transparency gave salespeople the power to move product at will, thereby providing the convenient, personalized service the company promised. Today that transparency allows online customers to order any item in any Nordstrom warehouse or store and to move seamlessly between in-store and online services.³ While Nordstrom’s backbone was supporting its digital services, a European retailer was frustrating customers with a “click-and-collect” offering that sometimes falsely told customers they could pick up their online purchase at a local store. Customers could arrive at their local store and learn their purchased item wasn’t available. Nordstrom had digitized; the European retailer had not.

CEMEX, the global cement company, has a highly touted operational backbone it refers to as the CEMEX Way. CEMEX introduced the CEMEX Way—an approach to building, implementing, and constantly improving standardized systems and business processes across its geographically dispersed businesses—in the mid-1990s. The CEMEX Way gave CEMEX the ability to constantly improve business systems and processes enterprise-wide. It also allowed the company to quickly integrate a series of acquisitions over the next 15 years.⁴

More recently, CEMEX has found that its globally standardized processes and operational efficiencies have enabled it to shrink the time between concept and delivery of CEMEX Go, its digital platform that serves as a foundation for digital offerings. Initially rolled out in Mexico and the United States, CEMEX Go is leveraging the company’s operational backbone as it rapidly adds functionality.

Kaiser Permanente, an integrated healthcare services provider serving 10 million people in the US, built an operational backbone around the implementation of an electronic medical records system.⁵ By ensuring the integration and accuracy of each individual’s medical information, Kaiser has been able to provide high quality care to individuals across its many facilities and providers. That ability has contributed to Kaiser’s industry-high customer satisfaction ratings.⁶ In addition, the company’s operational backbone positioned the company to rapidly implement its mobile app. Soon thereafter Kaiser started to create offerings to fulfill its vision of fostering patient-provider collaboration.

Many business leaders were persuaded long ago that something like an operational backbone would be valuable. Thus, many companies have been attempting to clean up messy legacy systems for years. Digital transformations are creating an urgency to build an operational backbone. Our research found that an operational backbone, like shared customer insight, is an essential building block in a digital transformation. Or, to put it another way, not having an operational backbone is a huge impediment to digital success.

44% of executives in established companies identified the operational backbone as “the one building block that is currently the biggest obstacle to digital transformation.”⁷

Most established companies have been trying to build and enhance an operational backbone for many years. Typically, these attempts have centered on implementation of enterprise systems like enterprise resource planning systems (ERPs), customer relationship management systems (CRMs), core banking engines, or electronic medical records systems. The LEGO Group offers an example of a company that successfully built an operational backbone that supports operational excellence and positions the company for becoming digital.

The LEGO Group: Building an Operational Backbone

When Jørgen Vig Knudstorp took over the reins of the LEGO Group in 2004, the company was near bankruptcy.⁸ Concerns about consumers’ changing tastes had given rise to massive innovation unrelated to LEGO’s star product—the LEGO brick. The company had moved into children’s clothing, television, and video games, and it had opened a number of theme parks. In trying to diversify, the LEGO Group had grown the number of SKUs (stock-keeping units, i.e., unique items available for sale) from 6,000 in 1997 to over 14,000 by 2004. This diverse product portfolio entailed complex and expensive production processes. Production was rigid and slow, and many of the LEGO Group’s new product launches and innovations failed.

As he took the reins of the struggling company, Knudstorp quickly identified supply chain issues as a competitive disadvantage:

One of the things that dawned on me when I arrived at the LEGO Group was that basically you have an allocation problem. You are producing 100,000 components every minute, twenty-four hours a day, 365 days a year. And you have to allocate them in optimal quantities at different sites, so that you can deliver a set of finished products at Walmart in Arkansas on Tuesday at 5:00 p.m. (and not 5:00 a.m.) in optimal order quantity, optimal transportation quantity, optimal manufacturing batches, and so on.

Knudstorp learned that many of the LEGO Group’s supply chain issues had grown out of the company’s commitment to innovation. Allowing product development staff free rein to innovate had led to gross inefficiencies in purchasing, production planning, and distribution.

For example, product innovations involving new colors that were only slightly different from the old colors added a great deal of cost but no real value. In general, designers had not considered the cost of materials in their designs. As they introduced new products requiring different materials, the designers formed relationships with new suppliers. By 2004 the LEGO Group was ordering specialized materials in small quantities from more than 11,000 different suppliers, nearly twice as many suppliers as Boeing used to build airplanes.⁹

The problems resulting from LEGO’s undisciplined supply chain and product development processes were not all about cost. Because the LEGO Group had not developed transparency into store demand and inventory levels, the company could not reliably fulfill customer orders. Ultimately, as Lego Group Vice President of Corporate Finance Henrik Weis Aalbæk explained, the lack of supply chain transparency resulted in lost sales.

Christmas sales are a big part of our revenue (approximately 50%) and we had, for example, pirate ships in demand in Germany, and we actually had too many in France. But we weren’t able to see that! And those big boxes, they don’t sell very well the following nine months!

LEGO’s Operational Backbone Delivers Operational Excellence

To implement the business changes needed to fix the supply chain, Knudstorp deputized an operational team of logistics, sales, IT, and manufacturing managers that met regularly for a year to revamp operations. This team identified 13 interdependent processes that made up their global supply chain (e.g., order to cash, procure to pay, manufacturing, quality). Building on an installed SAP technology base, the LEGO Group then implemented process changes that simplified distribution, cut down on suppliers, and reduced the number of logistics providers. The company also established close collaboration with their largest retailers to conduct joint forecasting, inventory management, and product customization.¹⁰

Most of the processes in the supply chain business area also needed to be integrated into one or more of the LEGO Group’s other functional business areas: Corporate Finance; Corporate Center; Markets and Products; and Community, Education, and Direct. To ensure standardization and integration of the processes in these business areas, the company established formal process teams. These process teams, consisting of key users and often an application architect, optimized processes across all five functional business areas.

Fixing supply chain processes unlocked an 11% increase in revenues, and more than doubled LEGO’s earnings from 2005 to 2006. But supply chain optimization was just the first step in creating operationally excellent core business processes. In 2008, the company standardized its human resources systems and processes. It then spent two years standardizing manufacturing processes. As a result, in 2008 and 2009, while much of the world was dealing with a global recession, the LEGO Group reported surging profits.

LEGO’s operational backbone efforts did not stop there. In 2011 the company tackled product lifecycle management (PLM). PLM influences more than 80% of the business processes at the LEGO Group, and effective PLM is essential to quickly bringing new products to market. The company targeted an increase in its product pipeline from around 200 products in 2010 to between 250 and 300 in 2012.

Implementing new PLM systems and processes supported better master data management in the supply chain. Together, the PLM and improved master data management increased process automation, which improved product output an estimated 50%.¹¹ More importantly, LEGO’s new PLM system exposed the cost and manufacturing implications of a new product early in its lifecycle, which informed decision-making around product innovation.

Each improvement in LEGO’s operational backbone exposed additional opportunities, which leaders have relentlessly pursued. Leaders note that the operational excellence the backbone is delivering fosters additional benefits: faster innovation, enhanced customer relationships, and efficient supply chain processes. In addition, LEGO’s operational backbone has positioned the company for digital. Its vision, “developing the builders of tomorrow,” requires seamless interactions between physical building experiences and online engagement. As it strives for digital success, LEGO hopes to apply the capabilities of SMACIT and other digital technologies to create greater digital support for collaboration among educators and for the millions of LEGO fans who have created online communities and shared YouTube videos.

Building an Operational Backbone Involves a Business Transformation

As the LEGO example indicates, building an operational backbone is a major, long-term organizational commitment. Leaders must first commit to implementing disciplined, common enterprise systems and processes to replace localized point solutions. Then they must also commit to driving business benefits from the data generated by the improved systems and processes. These efforts will transform a company.

This is the essence of digitization. It produces an operational backbone that replaces individual heroes with digitized processes. At LEGO, digitization was nearly a 10-year effort. This is not unusual. Although many companies digitize in fewer than 10 years, developing a powerful operational backbone in a big global company has consistently been a multi-year journey.

Campbell Soup, an $8B global food manufacturer, implemented Project Harmony in its North American operations from 2004 to 2008.¹² In 2008, DHL Express mapped an eight-year journey to implement its standardized European operations processes across the globe.¹³ Kaiser Permanente implemented its operational backbone from 2004 to 2010.¹⁴ Even the US Securities and Exchange Commission, a government agency with 4,000 employees, invested three years (2009–2012) in digitization.¹⁵ Philips’s efforts to develop its Philips Integrated Landscape (operational backbone) succeeded in standardizing its idea-to-market and market-to-order processes by 2011, but it was still implementing global standards for its order-to-cash processes in 2018.¹⁶

Digitization takes time because the changes are enormous. The bigger and more complex the company, the longer it takes—and the more likely it is to fail. The issues involve all three organizational design elements: people, processes, and technology. Here are some of the many obstacles to successful and swift digitization:

Big vague goals   At large complex businesses, leaders often set unrealistic goals for efforts like ERP implementations. Even in highly diverse companies, management might target a broad range of standardized global systems and processes without clarifying anticipated outcomes. For digitization transformations to succeed, goals must be both clear and achievable. People will then need metrics to help them gauge success. Otherwise, they will lose focus.

Leaders often do not give enough attention to the requirements for organizational change. To implement and execute processes that create reliable core transactions and accurate shared data, people must change what they are doing; they must abandon habits. If they continue to do what they’ve been doing, the outcomes will be the same. Many people find it hard or undesirable to change habits.

Bad data   New systems invariably require investments in cleansing the data from old systems and populating new fields. They also demand ongoing conformance to data capture processes. If people can’t trust the data, new systems and processes will have little impact and, even if the systems are implemented, behaviors won’t change and benefits won’t accrue.

Resistance to enterprise standards   Business unit managers must adopt systems and processes that may be optimal for the enterprise but are sometimes suboptimal for their units. As a result, they may lack the motivation to ensure success. If they can get away with it, they may go rogue and just continue to implement the systems and processes they want.

Messy legacy systems   Building a foundation for operational requirements requires disentangling a patchwork of messy legacy systems. Although technology is rarely as big a stumbling block as organizational changes, decommissioning legacy applications is not easy, especially when the business needs to continue to run during these “open-heart surgeries.”

Misaligned power structures   Process leaders must design processes and ensure their implementation across the organization. Often they are not empowered to do so.

Because of these challenges, many companies have initiated digitization transformations but failed to see them through. Companies with high profit margins (e.g., investment banks and pharmaceutical companies) find it particularly hard to persist with digitization, as long as they can afford the high costs of variability in their core processes. Realistically, however, companies without an operational backbone are—or soon will be—at a competitive disadvantage. In fact, while some digital start-ups do not have operational backbones, our observation is that a start-up without an operational backbone is simply in a transitional state. If a start-up does not build an operational backbone, it won’t be able to scale. Digital success will be brief.

Although digitization—building an operational backbone—is essential to competing in the digital economy, this book is not about digitization. An earlier book examined digitization in depth, and appendix 1 provides a summary of some of the key points of that book.¹⁷ Although companies have been pursuing digitization since at least the early 2000s, only around 15% of companies have an operational backbone that is widely adopted and valuable.¹⁸

Shortcuts to an Operational Backbone

To become digital, companies need to overcome the challenges of digitization—and they can’t afford to take 10 years to do so. Here are three things leaders can do to accelerate digitization and improve the odds of successfully building an operational backbone:

• Reduce business complexity
• Narrow the scope of digitization
• Lower your standards

Reduce Business Complexity

Business complexity makes development of an operational backbone daunting (and possibly even impossible). Companies that are serious about developing operational backbones can start by identifying non-value-adding business complexity. This may lead to a reduction in the number of products or product lines, clearer customer segmentation, or simpler, more standardized business models.

Like LEGO before 2004, companies can become so mesmerized by innovation that they introduce new products and services without seriously evaluating the added costs of operations, customer service, employee training, and IT support. For example, when Philips embarked on its Accelerate! transformation program, leaders learned that the company had more than 80 different business models. So Philips began its digitization efforts by assigning each of its business units to one of four business models: products, services, software, and systems (i.e., integrated solutions). Each business model had standard business processes. The small number of business models helped simplify Philips. In addition, the company has continued to sell off businesses and eliminate product lines that don’t fit its long-term vision. Most recently, it divested its former flagship lighting business so that it could focus on healthcare. As it simplifies the business, the operational backbone becomes easier to maintain.¹⁹

Unlike many financial services companies, USAA has not developed an addiction to new product innovation. The company has instead selectively added products if and only if leaders are convinced that they are a good fit with existing products and services. Consistent with our research, USAA has observed that product variety does not improve company performance.²⁰ USAA succeeds in its mission—ensuring the financial security of its members—by focusing innovation on providing integrated solutions rather than increasing product variety. This limits non-value-adding business complexity.

ING Direct Spain is another company that has purposefully avoided non-value-adding product proliferation.²¹ As it grew from a mono-line savings account provider to a full-service retail bank, ING Direct Spain introduced a rule that any new product must have the potential of generating at least 5% of the bank’s overall revenue. Werner Zippold, former chief operating officer, explained the rationale for limiting product variety:

You come into a bank and you see this huge fund portfolio of 3,000 funds. And you look at it and say, “Listen, you’re basically making 85% of your volume with 100 funds. What do you have the other 2,900 for?” And then you always get the answer: “Well, the clients who buy the Mongolian bond fund are just fantastic. They are five, but they’re incredible.” So, that’s the kind of thing we must not do, because we do not have the margin to support the complexity you get from that.

Our research suggests that business complexity is the enemy of operational excellence. It obstructs development of an operational backbone and, as a result, limits a company’s ability to become digital.

Narrow the Scope of Digitization

We have observed that no company has perfect systems and processes. What distinguishes a company with a powerful operational backbone is how that backbone directly supports the company’s most critical business requirements. Companies that try to fix everything invariably fix nothing. Many digitization efforts have been thwarted by pointless ambition. Narrow focus leads to faster progress and forces a better understanding of how a company expects to distinguish itself.

One way to narrow focus is to zero in on the one kind of data that is the most important to the business (e.g., customer, product, partner, supply chain) and then devote resources to doing whatever it takes to make that data accurate, accessible, and used. LEGO and Nordstrom both succeeded in their digitization efforts because they recognized the pivotal importance of supply chain data. Focusing on one kind of data limits the scope of a transformation while providing valuable capabilities as a foundation for future digital innovation.

UPS has long benefited from a commitment to protecting the integrity of product data (type of package, pickup and destination locations, date of delivery, sender, etc.).²² Interestingly, UPS’s chief competitor, FedEx, built its capabilities around customer data (name, address, account information, transactions, etc.). You would think that both FedEx and UPS would need both kinds of data. Indeed, they do! But if a company doesn’t decide what data will drive the design of its processes, the processes become piecemeal—and all data quality suffers.

These two companies’ different decisions about their data had important strategic implications. In the 1990s, FedEx was the higher-priced, more customer intimate of the two; UPS was the disciplined, efficient, lower-cost provider. Over time, each company was able to start mimicking the services offered by the other by building additional processes and capturing more valuable data. They could do so because they had disciplined business processes around their most important data. In short, they had a focused but robust operational backbone.

It’s worth having a senior management discussion on this question: If I could have just one kind of master data, what would I choose? Addressing that question forces a discussion of how the company fundamentally plans to operate—a first step toward building an operational backbone.

Lower Your Standards

If you don’t have an effective operational backbone and you cannot wait multiple years to build one, there’s only one thing left to do: lower your standards! This involves getting help from others to quickly fix what’s broken and using off the shelf, “pretty good” solutions. These approaches aren’t perfect and you may not want to rely on them forever, but they can get you to “good enough” to start working on becoming digital.

After its massive acquisition binge, Schneider Electric had a product portfolio that could address its customers’ full range of energy management needs. But the acquisitions left the company with more than 150 ERP and 300 CRM systems, all supporting customized processes.²³ As a result, it was difficult to provide the integrated products and services that had been the motivation for the acquisitions. From 2009 to 2012 the company made some progress in standardizing processes and reducing the number of ERPs by introducing global function leaders. However, the company was struggling to make real progress with its operational backbone.

In 2012, Schneider sought out Salesforce to help rapidly create a capability to integrate sales across its many product lines. In 18 months the company had enabled cross-selling, which was a huge, albeit limited, step forward. The company continued to gradually replace non-value-adding ERP systems and processes. When it reached 12 remaining ERPs, leaders recognized that those remaining would be expensive and time-consuming to replace. The company wanted to refocus on delivering digital offerings, so rather than continuing to invest heavily in digitization of core systems, Schneider decided to link its new offerings to each of these 12 ERP systems. This is not what Schneider would most want, but it allows the company to focus attention on developing digital offerings, which has far greater strategic impact than tearing out legacy systems.

Like Schneider’s adoption of Salesforce, a growing number of companies are relying on cloud services vendors to provide software and even business processes. Vendor services can greatly simplify implementation of critical, but not distinctive, processes, and they often provide data security that exceeds what a company can provide internally. This allows business leaders to hand off a growing number of non-strategic activities to partners so they can focus on key business decisions.

Ferrovial, the Spanish infrastructure services provider, found that digital technologies were opening up many important new opportunities to deliver customer services. Examples included: putting RFID (radio frequency identification) on trash bins to support more efficient trash collection; using big data and analytics to offer variable tollway pricing; designing IoT and mobile devices that helped customers monitor their facilities.

To seize these rapidly emerging revenue opportunities, Ferrovial leaders recognized they needed reliable, predictable underlying core services. But in 2008, Ferrovial had 10 IT units, each providing distinct local support to different parts of the business. Consolidating the 10 IT units into one was a relatively quick undertaking; consolidating all the systems and developing common processes was a much bigger task.

To accelerate the development of an operational backbone, CIO Federico Florez first engaged technology partners who moved Ferrovial’s IT infrastructure and communications services to the cloud. He followed that by working with partners who provided HR administration and purchasing in the cloud; Florez insisted that Ferrovial adapt its internal processes to what the cloud made available rather than allow individual businesses to demand exceptions.

This approach to operational backbone development limited debates and helped focus business leaders on deploying technology to improve customer offerings. Ferrovial was shifting its business focus to digital innovation within two years of initiating its cloud initiative. Within four years Ferrovial had a robust operational backbone.²⁴

Getting Your Operational Backbone Right

Our research indicates that, although companies have been engaging in digitization transformations since the late 1990s, the majority of companies do not have an operational backbone that will support their digital transformation. In fact, their legacy systems and processes are likely to be an impediment. This chapter developed the following key points:

• Digitized does not equal digital. SMACIT and other digital technologies can contribute to digitization—applying technology to optimize business processes and operations. The goal of digitization is operational excellence. Digital technologies are essential to becoming digital—innovating to create customer solutions. The goal of becoming digital is profitable digital offerings.
• Digitizing involves building and maintaining an operational backbone (a coherent set of enterprise systems, data, and processes that ensure operational efficiency and quality transaction and master data). The operational excellence that results from digitizing is table stakes for becoming digital. That is why we refer to an operational backbone as a digital building block.
• Building an operational backbone invariably requires unlearning entrenched organizational habits, disrupting existing power structures, and installing disciplined business processes that capture critical master and transaction data. Big, old companies have embarked on long, painful transformations to try to implement a backbone.
• Because it’s so difficult to implement an operational backbone, most companies do not have one. They should start now to simplify their business, narrow their focus, and lower their standards if necessary to quickly implement some core operational capabilities.
• An operational backbone is never complete. Business changes, coupled with new technologies, provide constant opportunities to enhance technologies and re-optimize critical business processes. In addition, companies are still learning how to take advantage of the data generated within their operational backbones. As they do so, they will identify needs for more and better data, which will lead to further process improvements.

Is your company’s organizational backbone “good enough” to support your digital transformation? If so, are you continuously adopting new digital technologies, as appropriate, to update key systems and processes? If not, what are you going to do about it?

Notes

1. J. W. Ross, I. Sebastian, C. M. Beath, and L. Jha, “Designing Digital Organizations—Summary of Survey Findings,” MIT CISR Working Paper No. 415, February 2017; and M. Mocker, J. W. Ross, and C. M. Beath, “How Companies Use Digital Technologies to Enhance Customer Offerings—Summary of Survey Findings,” MIT Sloan Center for Information Systems Research, Working Paper No. 434, February 2019.

2. J. W. Ross, I. Sebastian, C. M. Beath, and L.Jha, “Designing Digital Organizations—Summary of Survey Findings.”

3. J. W. Ross, C. Beath, and I Sebastian, “Why Nordstrom’s Digital Strategy Works (and Yours Probably Doesn’t),” hbr.org, January 14, 2015. Available at: https://hbr.org/2015/01/why-nordstroms-digital-strategy-works-and-yours-probably-doesnt (accessed August 26, 2018).

4. The case of CEMEX is described in more detail in J. W. Ross, P. Weill, and D. C. Robertson, Enterprise Architecture as Strategy (Harvard Business School Press, 2006), 177–179.

5. M. Kagan, I. Sebastian, and J. W. Ross, “Kaiser Permanente: Executing a Consumer Digital Strategy,” MIT Sloan Center for Information Systems Research, Working Paper No. 408, March 2016.

6. See “Kaiser Permanente Again Tops Annual Consumer Loyalty Study,” kaiserpermanente.com, press release, June 12, 2018. Available at: https://share.kaiserpermanente.org/article/kaiser-permanente-again-tops-annual-consumer-loyalty-study/ (accessed July 24, 2018).

7. M. Mocker, J. W. Ross, and C. M. Beath, “How Companies Use Digital Technologies.”

8. P. Andersen and J. W. Ross, “Transforming the LEGO Group for the Digital Economy,” MIT Sloan Center for Information Systems Research, Working Paper No. 407, March 2016.

9. K. Oliver, E. Samakh, and P. Heckmann, “Rebuilding Lego, Brick by Brick,” strategy+business, August 29, 2007. Available at: https://www.strategy-business.com/article/07306 (accessed May 3, 2018).

10. D. Robertson and B. Breen, Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry (Crown Business, 2014).

11. D. Hannon, “LEGO Builds a Broader Product Line with SAP PLM,” SAPinsider, April 1, 2012. Available at: https://sapinsider.wispubs.com/Assets/Case-Studies/2012/April/LEGO-Builds-A-Broader-Product-Line-With-SAP-PLM (accessed October 8, 2018).

12. J. W. Ross and C. Beath, “Campbell Soup Company: Harmonizing Processes and Empowering Workers,” MIT Sloan Center for Information Systems Research, Case Study, Working Paper No. 374, June 2008.

13. M. Mocker, J. W. Ross, and P. Ciano, “DHL Express: Implementing and Maintaining a Global Process Standard,” MIT Sloan Center for Information Systems Research, Case Study, Working Paper No. 393, January 2014.

14. M. Kagan, I. M. Sebastian, and J. W. Ross, “Kaiser Permanente: Executing a Consumer Digital Strategy,” MIT Sloan Center for Information Systems, Working Paper No. 408, March 2016.

15. B. Wixom and J. W. Ross, “The US Securities and Exchange Commission: Working Smarter to Protect Investors and Ensure Efficient Markets,” MIT Sloan Center for Information Systems Research, Working Paper No. 388, November 2012.

16. M. Mocker, J. W. Ross, and E. Van Heck, “Transforming Royal Philips: Seeking Local Relevance While Leveraging Global Scale,” MIT Sloan Center for Information Systems Research, Case Study, Working Paper No. 394, February 2014; and M. Mocker and J.W. Ross, “Transforming Royal Philips to Reinvent Healthcare in the Digital Age,” MIT Sloan Center for Information Systems Research, Working Paper No. 425, December 2017.

17. For a detailed discussion of how to define and implement an operating model, please refer to J. W. Ross, P. Weill, and D. C. Robertson, Enterprise Architecture as Strategy (Harvard Business School Press, 2006).

18. M. Mocker, J. W. Ross, and C. M. Beath, “How Companies Use Digital Technologies.”

19. M. Mocker and J. W. Ross, “The Problem with Product Proliferation,” Harvard Business Review 95, no. 3 (2017): 104–110.

20. Ibid.

21. M. Mocker and J. W. Ross, “ING Direct Spain: Managing Increasing Complexity while Offering Simplicity,” MIT Sloan Center for Information Systems Research, Working Paper No. 390, June 2013.

22. J. W. Ross, “United Parcel Service: Delivering Packages and e-Commerce Solutions,” MIT Sloan Center for Information Systems Research, Working Paper No. 318, August 2001.

23. A. Karunakaran, J. Mooney, and J. W. Ross, “Accelerating Global Digital Platform Deployment Using the Cloud: A Case Study of Schneider Electric’s ‘bridge Front Office’ Program,” MIT Sloan Center for Information Systems Research, Working Paper No. 399, January 2015.

24. N. O. Fonstad and J. W. Ross, “Building Business Agility: Cloud-Based Services and Digitized Platform Maturity,” MIT Sloan Center for Information Systems Research, Research Briefing Vol. XV, No. 2, February 2015.